Process for providing timely quality indication of market trades

ABSTRACT

Real time or near real time assessment of the quality of securities transactions is accomplished by intercepting order and execution communications between trader and broker, comparing the execution data with contemporaneous market data relative to the transaction or transactions involved, and informing the trader of that comparison. This is accomplished without interrupting or impeding the trader-broker communications, except that a broker-trader communication may, if desired, be interrupted and relevant data aggregated until the aggregate reaches a desired value. It is preferred that the comparison be between the volume-weighted average price of the securities transaction and the volume-weighted average price of the market data for that security, over the life of the order. A particular effective way to communicate the quality evaluation to the trader is disclosed.

FIELD OF THE INTENTION

The present invention relates to electronic communication networksutilized for securities trading and more specifically to a system andmethod which allows for real time or near real time execution qualityindications to financial market traders and others.

BACKGROUND OF THE INVENTION

Markets have existed for centuries which allow people to buy and sellsecurities (e.g., stocks, futures, options, commodities, etc.). Today,examples of these markets in the United States are: The New York StockExchange (NYSE), The National Association of Security Dealers AutomatedQuotation (NASDAQ) System, and The American Stock Exchange (AMEX). Thesemodern security markets facilitate the exchange of over two billionshares of stock every business day.

Investors, either personally or through professional intermediaries(hereinafter generally designated “traders”) typically place orders withbrokers, who then execute the orders, typically through buying orselling financial instruments (stocks, investment instruments, options,bonds, etc.) in the open market. For large orders, the process by whichthe financial instruments are obtained is not trivial—the trader orbroker has to manage the way the order impacts the market to avoidaffecting the price, as well as generally securing the best possibleprice for the trader. The broker's performance in this regard is ofinterest to the trader. The trader will prefer to use a broker that getsbetter prices.

The need for “broker report cards” and “league tables” to determinewhich broker is best for a given financial instrument is well known, andseveral companies already provide such a service. For example, TAGprovides a monthly report that shows this kind of information. Theproblem with the current state of the art is that the information is notavailable in real time. It would be a great benefit for a trader to beable to see how good a j ob the broker is doing on a particular order asit is actually being executed in the market. Accordingly, what is neededis a method for providing an indication of execution quality in realtime, or near real time, so the trader will know immediately whether aparticular order or series of orders is being handled well.

SUMMARY OF THE INVENTION

The present invention is a system to track the quality of orderexecution in real time, or near real time, so the investor will knowimmediately whether a particular order is being handled well.Additionally, statistics may be kept over a longer term, so brokerperformance over longer time periods than one day or one order can bemonitored.

Executions are currently sent back electronically to the trader from theexecuting venue. The present invention introduces an intercept in theelectronic data connection between the executing broker and the trader'sorder management system. This non-intrusive intercept records the ordersand executions without interfering with the communications between thetrader and the executing venue, and sends the information to anExecution Quality Calculation Module (“EQCM”). The EQCM furthermore hasaccess to market data via an electronic link. The EQCM calculates theexecution quality in real time (or near real time) and displays theresults to the trader.

According to a preferred embodiment of the invention, the executionquality is calculated as the difference between the volume-weightedaverage price (“VWAP”) of the trader's executions and the VWAP of themarket data for that security, over the life of the order. Thisdifference can be displayed as a number, or represented graphically. Inparticular, the invention can keep track of the execution quality forone or more orders, and indicate to the trader if the value is departingfrom certain limits. This warning can be visible or audible, or both.Furthermore, an indication of the order's price impact on the market maybe given, by displaying to the trader the relative size of his ownexecuted trades compared to the volume being traded in that security byother market participants.

DESCRIPTION OF DRAWINGS

FIG. 1 is a diagram illustrating the normal communications betweentraders and brokers.

FIG. 2 is a diagrammatic representation of one aspect of the system ofthe present invention.

FIG. 3 is a diagrammatic representation of an additional optionalfeature in the process of the present invention.

FIG. 4 is a screen through which the system displays real time (or nearreal time) execution quality as related to currently open orders.

FIG. 5 is a screen through which the system displays historic relativeperformance ranking of executing brokers, the performance benchmarksbeing execution quality, volume impact, trader vote, and total volume;

FIG. 6 is a screen through which the system displays the historicperformance of one particular broker, the performance benchmarks beingexecution quality, volume impact, trader vote, and total volume;

FIG. 7 is a screen through which the system displays historic detailsand market data pertaining to a particular order, as well as performancebenchmarks execution quality, volume impact, trader vote, and totalvolume.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

An entity which wishes to buy or sell a security acts either personallyor through some other entity (here generally termed a “trader”) toexecute the particular transaction involved. The trader buys or sellsthe direct financial instrument through the services of an executingbroker. The process for handling the order requires experience andskill. The trader not only should secure the best price for himself orhis client, the investor, as the case may be, but in so doing has tomanage the way in which the particular order in question impacts themarket, since that impact can affect the price paid. It is therefore ofimportance to the trader to work through a broker who performs best fromthe point of view of the trader and this, of course, significantlyinvolves the skill of the broker who has been selected. Particularlywith high trading activity it is important to be able to evaluate theperformance of the broker that has been selected so that, the bestbroker can be selected for subsequent transactions.

As indicated in FIG. 1, the normal security transaction involves anelectronic order, typically using FIX from the trader to the executingbroker to carry out a certain purchase or sale and, during or after thetransaction, a communication from broker to trader of the details of thetransaction. An order may be outstanding in the market for an extendedperiod of time, even days, weeks or months, and the trade may ten getcontinuous updates as partial executions occur in the market. Thepresent invention will enable the trader to maintain an overview ofexecution quality at all times, even before that order has beencompletely filled. The order information from trader to broker and theexecution information from the executing venue to trader are ordinarilyaccomplished electronically over a suitable communications link inmachine-readable form.

The entity in charge of the communication link between trader and brokeris thus in a particularly strategic position to determine and convey tothe ultimate investor or other trader whether the executing broker isperforming optimally, or to convey to the ultimate investor or othertrader whether the executing broker is performing optimally, because thecommunication entity has real time access to the trader/broker andmarket communications. Consequently, in accordance with the presentinvention, and as indicated in FIG. 2, when evaluation of a particularorder or orders is desired the relevant order communication is sensed bya message interceptor and the identity of the order or orders to beevaluated is sent to an EQCM where that information is stored. As theorder is being processed the executing venue sends execution informationback to the trader over an appropriate accessible communications link.The message interceptor will intercept relevant execution informationidentified by the previously stored order information (a single orderwill often involve a plurality of executions), and will send thatexecution information to the EQCM. That module will also receiveup-to-date market data relative to the transaction in question on a realtime basis and will compare that relevant market data with the executiondata. It will then convey that comparison, which is a measure of thequality of the particular execution in question, to the entity(“trader”) seeking that information. The interception of order data andin most cases of execution data is carried out without restricting thetransmission of the data between trader and or market broker; therelevant data is merely accessed and sent to the calculating module.That module may be connected to a generic market data source whichmaintains up to date data on the current prices of the securities inquestion, the calculation module obtaining data from that source withrespect to the particular security then being evaluated.

It is preferred to calculate the execution quality of a particulartransaction or transactions by the difference between thevolume-weighted average price of the executions in question and thevolume-weighted average price (VWAP) of the market data for thatsecurity over the life, of the order. Alternatively, the comparison canbe with the last execution price before the order was entered, or withthe average (possibly VWAP) execution price for some time before theorder was entered. The difference can be displayed in any appropriatemanner, as by number or by a graphical representation. In particular,the process can keep track of the execution quality for one or moreorders from a given trader and indicate to the trader if the value isdeparting from certain limits. This warning can be visible, audible, orboth.

Preferably also, the system can indicate a given order's volume impacton the market by displaying to the trader the relative size of his ownexecutions compared to the volume being traded in the security by othermarket participants.

While one of the main advantages of the system of the present inventionis that it functions from the trader-client transmission in real-timewithout interfering with that transmission, there is one set ofcircumstances where the processing of the present invention can, ifdesired, be designed to interfere with the transmission of executioninformation from broker to trader but without impeding the real timeevaluation of transaction quality. Currently an executing venue orbroker can “bunch up” executions before transmitting them to the traderin larger lots (e.g., 5 executions of 100 shares each might be sent asone execution of 500 at the average price of the five). This is aservice that the broker has traditionally provided as a convenience tothe trader sparing the trader from having to deal with large numbers ofsmall executions. Also, some order management systems are known tosuffer performance degradation when presented with a large flow of smallexecutions. The major disadvantage of executing broker “bunching” isthat with such “bunching” the trader cannot track execution quality inreal-time unless all the executions are transmitted at or near the timethey actually happen in the market. Hence, if desired, and as isillustrated in FIG. 3, the executing broker may still send executiondata to the trader immediately as the relevant transactions occur,permitting the system to perform real time execution qualitycalculations, but in this embodiment the interceptor itself can act as a“bunching” agent, aggregating executions and transmitting them to thetrader only in larger lots, the size of the lot being determined by thetrader. With this bunching of the multiple small executions into asmaller number of larger executions an average price for thetransactions can be computed by the system and transmitted to the traderand, if desired, used as the evaluation criterion.

While the quality evaluation can be communicated to the trader in a widevariety of arrays, a particularly effective and helpful (to the trader)way is by means of computer assisted displays. We have invented adisplay protocol disclosed in FIGS. 4-7 which in general and in detailis very valuable.

In FIG. 4 the computer system presents a trader with means to view theexecution quality. The trader selects an order from the list 401 as aninput field for identifying the order to be analyzed in the displaypanel 402. The row of bulbs at the left of the list 401 display colorswhich indicate the execution quality of the order in question. The pointgraph displays market execution data for the selected order's stocksymbol as green points 407, while executions by others in that stocksymbols are overlaid using red points 408. The volume for eachtransaction is indicated with bars 409. The abscissa axis is the time ofday 410, while the ordinates 403 are volume for the lower graph, pricesfor the upper.

A label 404 indicates whether the selected order was buy, sell or sellshort—as well as the order quantity, stock symbol, and special handlinginstructions e.g. Not Held. To the right of the screen a pie chartindicates what proportion of the market volume was executed for theselected order 412, and what proportion was executed by the rest of themarket 411.

Under the pie chart, an average price is indicated for the selectedorder 413, for the rest of the market 414. The execution quality isindicated by the label 415.

Means for entering a trader vote is provided by a row of buttons 405.Once the trader has selected one of the values, the opportunity to makea written comment to the selected order is provided (not shown).

Turning to FIG. 5, the purpose of the screen is to rank the executingvenues (brokers) according to the performance benchmarks executionquality, volume impact, trader vote, and total volume. A panel 501provides means for selecting a time period for analysis, with means forquickly setting standard time periods 503. The results are shown in atable with columns Firm Name 504, Quality 505 (execution quality),Impact 506 (percentage of market volume captured), Vote 507 (tradervote), Volume 508 (total volume traded). The figures in these columnsare summaries, over the selected time period. By clicking on one of thecolumn headings, the table will be sorted, normally in descending order,by the values in that column. Optionally, the information in the tablecan be made to pertain to one single symbol, by means of providing aninput in panel 502.

The data in the table is also displayed graphically on the right of FIG.5, where the legend 513 also acts as means to select which data the userwishes to display on the graph (in this example, “Quality,” “Vote,” and“Volume” have been selected for display). The abscissas 518 for all dataare firm mnemonics that identify each broker. The total volume is shownas a bar graph 517 with ordinates 509. The trader vote and executionquality are shown as bar graphs 511 and 512 respectively, with ordinates510.

At the bottom of the screen, the currently selected firm is indicated inthe panel 514. The firm's identifying mnemonic is indicated in panel516.

The screen in FIG. 6 displays similar information to FIG. 5, with theprimary difference being that the information applies to the selectedfirm only (indicated in panels 608 and 609). The orders for the selectedfirm for the selected time period are listed in the table with headings“Date” 610 (order date), “Symbol” 611 (stock ticker symbol), “Qty” 611(order qty), “Impact” 615 (proportion of market volume acquired for thisorder while it was open). Column headed “Vote” (Trader Vote) is notshown, but can be made visible by means of a horizontal scroll bar 616.The table can be sorted as with the screen of FIG. 5 by clicking on thetable headings. Also shown in FIG. 6 is the “Impact” bar graph 606,which is visible due to being selected in the panel 607. The abscissaeon this graph are the stock ticker symbols 614. The ordinates for the“impact” bar graph are at the top left of the chart 605.

Turning to FIG. 7, the screen displays detailed information about allorders for the selected firm on selected dates. The dates are selectedby clicking in the calendar 701. The orders are shown in the table belowthe calendar, with headings “Order ID” 708 (Order identifier), “Symbol”709 (stock ticker symbol), “OrderQty” 710 (order quantity), “Executed”711 (actually executed quantity), “Avg Price” 712 (Order average price),“VWAP” 713 (Order volume weighted average price). A specific order isselected by clicking on it in this table. By means of a number of checkboxes, the graph 707 (which is similar to FIG. 4) can be made to displayvarious information. The control marked “Show Impact Pie” 702 enables ordisables the display of the pie chart. The control marked “Show VWAP”703 enables/disables displaying the VWAP price as a line on the pricegraph. The control marked “Show Own Fills” 704 enables and disables thedisplay of own orders' executions on the price graph. The control marked“Show Market Data” 705 enables and disables the display of market datanot belonging to the selected order. The control marked “Link acrossdays” 706 prompts the system to display several days' worth of data, fororders that remained open more than one trading day. Details of theexecutions against the selected order are displayed in the table belowthe graph with heading “Transaction Ref” 714 (Transactionidentification), “Time” 715 (date/time of the execution), “Qty” 716(Execution quantity), “Price” 717 (Execution price), “Quality” 718(Execution quality), and “Impact” 719 (Percentage market share for thisorder).

While only a limited number of embodiments in the present invention havebeen specifically described above it will be apparent that manyvariations may be made therein, all without departing from the spirit ofthe invention as described in the following claims.

1. A computer system comprising: one or more processors and a memorystoring computer-readable instructions that, when executed by the one ormore processors, cause the system to: generate an interactive graphicaluser interface (GUI) comprising a selectable first region and a secondregion, the selectable first region configured to simultaneouslydisplay, in a graphical format, an execution quality and orderinformation associated with an electronic order, and the second regionconfigured to display, responsive to input comprising a selection of theselectable first region, one or more indications of the executionquality.
 2. The system of claim 1, wherein the computer-readableinstructions, when executed by the one or more processors, further causethe system to: detect electronic transmissions between a trader systemand an executing venue system; and copy at least one of the orderinformation and order execution details from the electronictransmissions without impeding any of the electronic transmissions. 3.The system of claim 2, wherein the computer-readable instructions, whenexecuted by the one or more processors, further cause the system to:receive real-time market data contemporaneously with the order executiondetails, the real-time market data originating from an external datasource; determine the execution quality based on the real-time marketdata and the order execution details; and transmit the execution qualityto the trader system.
 4. The system of claim 3, wherein thecomputer-readable instructions, when executed by the one or moreprocessors, further cause the system to: transmit an alert to the tradersystem when an aggregate of one or more execution quality values meetsor exceeds a predetermined limit.
 5. The system of claim 3, wherein theexecution quality is determined by calculating a difference between avolume-weighted average price indicated within the order executiondetails, and a volume-weighted average price determined from thereal-time market data.
 6. The system of claim 3, wherein the executionquality comprises an indication of a deviation of a value between anexecution price of one or more partial executions and a correspondingreal-time market price.
 7. The system of claim 6, wherein thecomputer-readable instructions, when executed by the one or moreprocessors, further cause the system to: generate, by the interactiveGUI, a display comprising one or more of: a comparison between a volumeincluded in the one or more partial executions and a volume of orderexecutions pertaining other market participants, a comparison betweenexecution qualities associated with two or more executing venue systems,a listing of a plurality of executing venue systems arranged accordingto a performance quality metric, and an indication as to what volume ofthe electronic order remains unfulfilled.
 8. The system of claim 3,wherein at least one of the electronic transmissions comprises orderexecution details pertaining to one or more partial executions of the atleast one electronic order.
 9. The system of claim 8, wherein thecomputer-readable instructions, when executed by the one or moreprocessors, further cause the system to: determine and transmit theexecution quality to the trader system each time the order executiondetails pertaining to one or more partial executions is received,thereby providing the trader system ongoing quality updates before theelectronic order is completely fulfilled.
 10. The system of claim 2,wherein at least one of the electronic transmissions compriseselectronic order information identifying an electronic order thatrequires multiple partial executions by said executing venue systembefore the at least one electronic order is completely fulfilled.
 11. Acomputer software product, comprising a non-transitory computer-readablestorage medium having machine-readable instructions stored thereon forexecution by at least one processor, the machine-readable instructionscausing the at least one processor to perform a method comprising:generating an interactive graphical user interface (GUI) comprising aselectable first region and a second region; simultaneously displaying,by the selectable first region in a graphical format, an executionquality and order information associated with an electronic order; anddisplaying, by the second region responsive to input comprising aselection of the selectable first region, one or more indications of theexecution quality.
 12. The computer software product of claim 11,wherein the machine-readable instructions further cause the at least oneprocessor to perform the steps of: detecting electronic transmissionsbetween a trader system and an executing venue system; and copying atleast one of the order information and order execution details from theelectronic transmissions without impeding any of the electronictransmissions.
 13. The computer software product of claim 12, whereinthe machine-readable instructions further cause the processor to performthe steps of: receiving real-time market data contemporaneously with theorder execution details, the real-time market data originating from anexternal data source; determining the execution quality based on thereal-time market data and the order execution details; and transmittingthe execution quality to the trader system.
 14. The computer softwareproduct of claim 13, wherein the machine-readable instructions furthercause the processor to perform the step of: transmitting an alert to thetrader system when an aggregate of one or more execution quality valuesmeets or exceeds a predetermined limit.
 15. The computer softwareproduct of claim 13, wherein the execution quality is determined bycalculating a difference between a volume-weighted average priceindicated within order execution details, and a volume-weighted averageprice determined from the real-time market data.
 16. The computersoftware product of claim 13, wherein the execution quality comprises anindication of a deviation of a value between an execution price of oneor more partial executions and a corresponding real-time market price.17. The computer software product of claim 16, wherein themachine-readable instructions further cause the processor to perform thesteps of: generating, by the interactive GUI, a display comprising oneor more of: a comparison between a volume included in the one or morepartial executions and a volume of order executions pertaining othermarket participants, a comparison between execution qualities associatedwith two or more executing venue systems, a listing of a plurality ofexecuting venue systems arranged according to a performance qualitymetric, and an indication as to what volume of the electronic orderremains unfulfilled.
 18. The computer software product of claim 13,wherein at least one of the electronic transmissions comprises orderexecution details pertaining to one or more partial executions of the atleast one electronic order.
 19. The computer software product of claim18, wherein the computer-readable instructions, when executed by the oneor more processors, further cause the system to perform the steps of:determining and transmitting the execution quality to the trader systemeach time the order execution details pertaining to one or more partialexecutions is received, thereby providing the trader system ongoingquality updates before the electronic order is completely fulfilled. 20.The computer software product of claim 12, wherein at least one of theelectronic transmissions comprises electronic order informationidentifying an electronic order that requires multiple partialexecutions by said executing venue system before the at least oneelectronic order is completely fulfilled.
 21. A method comprising:generating, by one or more processors configured to executecomputer-readable instructions stored in a memory, an interactivegraphical user interface (GUI) comprising a selectable first region anda second region; the selectable first region configured tosimultaneously display, in a graphical format, an execution quality andorder information associated with an electronic order; and the secondregion configured to display, responsive to input comprising a selectionof the selectable first region, one or more indications of the executionquality.
 22. The method of claim 21, further comprising: detecting, bythe one or more processors, electronic transmissions between a tradersystem and an executing venue system; and copying, by the one or moreprocessors, at least one of the order information and order executiondetails from the electronic transmissions without impeding any of theelectronic transmissions.
 23. The method of claim 22, furthercomprising: receiving, by the one or more processors, real-time marketdata contemporaneously with the order execution details, the real-timemarket data originating from an external data source; determining, bythe one or more processors, the execution quality based on the real-timemarket data and the order execution details; and transmitting, by theone or more processors, the execution quality to the trader system. 24.The method of claim 23, further comprising: transmitting, by the one ormore processors, an alert to the trader system when an aggregate of oneor more execution quality values meets or exceeds a predetermined limit.25. The method of claim 23, wherein the execution quality is determinedby calculating a difference between a volume-weighted average priceindicated within order execution details, and a volume-weighted averageprice determined from the real-time market data.
 26. The method of claim23, wherein the execution quality comprises an indication of a deviationof a value between an execution price of one or more partial executionsand a corresponding real-time market price.
 27. The method of claim 26,further comprising: generating, by the one or more processors, a displaywithin the interactive GUI comprising one or more of: a comparisonbetween a volume included in the one or more partial executions and avolume of order executions pertaining other market participants, acomparison between execution qualities associated with two or moreexecuting venue systems, a listing of a plurality of executing venuesystems arranged according to a performance quality metric, and anindication as to what volume of the electronic order remainsunfulfilled.
 28. The method of claim 23, wherein at least one of theelectronic transmissions comprises order execution details pertaining toone or more partial executions of the at least one electronic order. 29.The method of claim 28, further comprising: determining andtransmitting, by the one or more processors, the execution quality tothe trader system each time the order execution details pertaining toone or more partial executions is received, thereby providing the tradersystem ongoing quality updates before the electronic order is completelyfulfilled.
 30. The method of claim 22, wherein at least one of theelectronic transmissions comprises electronic order informationidentifying an electronic order that requires multiple partialexecutions by said executing venue system before the at least oneelectronic order is completely fulfilled.